Market at a Glance - 1/28/2016
By: Christopher Mistal
January 28, 2016
1/27/2016: Dow 15944.46 | S&P 1882.95 | NASDAQ 4668.17 | Russell 2K 1002.75 | NYSE 9373.78 | Value Line Arith 3946.98
Psychological: On edge. No Santa, First Five Days down, DJIA’s December low violated and, barring a highly unlikely mega one-day rally, a down January. Individually each of these indicators has been wrong, but collectively the case is compelling for more weakness. The problem is, the market rarely does what the crowd is expecting and the crowd is clearly expecting further downside. There likely will be more weakness ahead, but a brisk unexpected rally could cause plenty of pain for all the celebrating bears now. 
Fundamental: Murky. According to the Atlanta Fed’s GDPNow, real GDP for 2015 Q4 is forecast to be just 1% which is actually up from one week ago when it was 0.7%. Not exactly the robust growth that would necessitate higher interest rates or support a strong U.S. dollar, but nonetheless both exist. The stronger dollar has led to significant revenue declines for numerous multi-national corporations which in turn is pressuring earnings and making valuations appear rich.
Technical: Oversold. Intraday, DJIA, S&P 500 and NASDAQ were all down greater than 10% year-to-date by the middle of January. The brisk selloff sent MACD, Stochastic and relative strength indicators all plunging. These indicators have only just begun to show any sign of improvement. DJIA and NASDAQ have found support just above their respective lows from last August. S&P 500 has flirted with its October 2014 low. The current lines in the sand are the October 2014 lows. Should DJIA, S&P 500 and NASDAQ all meaningfully break below those levels a bear market would be the most probable outcome.  
Monetary: 0.25-0.50%. If the Fed is still on course to normalize rates, the journey just got longer. The Fed did not raise rates during its recent meeting. Instead they choose to acknowledge recent global market turmoil and the potential risks it creates. Inflation is still below target, but the Fed insists this is due primarily to the transitory effects of falling energy and commodity prices. The Fed’s creditability was already questionable. The longer it takes for inflation to accelerate, and/or should the labor market begin the falter, what creditability remains could disappear entirely. 
Seasonal: Luke Warm. The Best Consecutive Three Month Span, November to January, comes to an end. February can be the soft patch in the Best Six/Eight Months. Since 1950, February performance: DJIA +0.2%, S&P 500 +0.1%, NASDAQ +0.7% (since 1971). Typically bullish election-year forces do little to improve results; DJIA –0.1%, S&P 500 +0.1% and NASDAQ +2.8% (largely because of 19.2% advance in 2000).